19 January 2001, 15:44  Philadelphia area manufacturing activity collapsed in January

NEW YORK (MktNews) - Philadelphia area manufacturingactivity collapsed in January following the weakness of late2000, Philadelphia Fed economist Michael Trebing saidThursday. "The declines were unexpected and widespread. The surveysuggests a decline across a large number of firms in thesector," Trebing explained. Trebing, speaking to reporters by telephone after the releaseof the Philadelphia Fed's Business Outlook Survey, added thatbad weather did not affect the outcome of this month's survey. "We are not aware of any firm responses citing weather asan important factor this time around." The general activity index plummeted to -36.8 in Januaryfrom -4.2 in December, well below market forecasts for a -8.8reading and the lowest level seen since December 1990. The six-month outlook diffusion index fell to -16.3 from -4.2,which suggested the current declines would not be short-lived. Of note, the Philadelphia Fed index registered its largestone-month decline this month and is at its lowest level sinceDecember 1990. The employment index is at its lowest levelsince April 1991. Trebing added that while the indexes are in significantnegative territory this month, there have been negativenumbers in the past, and there is nothing in the current indexdeclines "to suggest spill over into other industries." Elsewhere, the new orders index fell -30.9 in January from4.0 in December. Meanwhile, shipments also declineddramatically to -30.8 from 3.1. The prices paid index declined to 12.9 this month from 15.8in December while the prices received index fell to -5.5 from -3.2. The number of manufacturing employees index fell to -23.5in January from -12.4 in December while the average employeeworkweek dropped to -27.3 from -13.9. The delivery time index slipped to -22.0 from -10.3,inventories dropped to -13.2 from -9.1 and unfilled ordersdeclined to -25.6 from -14.3. Jay Feldman, an economist with Credit Suisse First Boston,said the Philadelphia Fed report "is basically playing catchup toNAPM," which also showed dramatic declines. "At the margin, it supports that case but it doesn't cementit," he said when asked if the numbers will mean the Fed will cutrates by 50 basis points at the next Fed meeting rather than 25basis points. Other factors like the stock market, Friday's consumerconfidence report and the duration of the California utilitiescrisis will also come into play. John Ryding, senior economist at Bear Stearns, added thatthe survey shows a decline to recession levels and there's nosign of near-term improvement in the six-month outlooknumbers. "At the margin, these numbers say the Fed will ease 50basis points by the next meeting," he said, pointing to federalfunds futures for February, which are pricing in closer to a 50basis point ease rather than 25 basis points.

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